Multi-vendor sourcing in a retail supply chain

This paper describes a methodology for managing capacity, inventory, and shipment for an assortment of retail products produced by multiple vendors. The vendors differ in lead times, costs, and production flexibility. Product demand is uncertain and fluctuates over time. We develop an optimization model to choose the production commitments that maximize the retailer's expected gross profit, given demand forecasts and vendors' capacity and flexibility constraints. The model has been incorporated into a decision support system, developed in collaboration with supply chain planners at a global retailer of seasonal and fashion merchandise. The software has been tested by two major retailers.